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First-time buyers will receive state-funded grants to help them meet strict Central Bank deposit limits, under plans being considered by Environment Minister Alan Kelly. The news comes as senior Government sources last night said its announcement on a new mortgage arrears plan is now not expected until after the Spring Statement on the economy on April 28. This is because of continued disagreement between the Coalition over Labour demands to reduce the bankruptcy term from three years to one year.

The mortgage arrears plan had been expected to be announced next week. “It is now more likely that it will be pushed back until after the Spring Statement. There remain a number of issues to be agreed upon,” said one senior Government source last night. The new Labour proposals, which are being driven by a number of party backbenchers, are being targeted at couples living in urban areas who cannot meet the deposit rules in order to obtain a mortgage.

The measures will mean the minister directs local authorities to provide cash grants to applicants struggling to get onto the property market in cities such as Dublin, Cork, Limerick and Galway. A similar scheme, which previously saw first-time buyers being given grants of up to £IR3,000, was scrapped in 2002. The Irish Independent understands senior party figures, including Mr Kelly, are supportive of the plans discussed at the weekly parliamentary party meeting this week. But two separate sources said such proposals would not be on the table for October’s Budget but instead could form part of Labour’s election manifesto. Dublin Central TD Joe Costello said the proposals have “significant support” within the party and must be considered as part of a wider package to deal with the housing crisis.

Labour parliamentary chairman Jack Wall agreed, saying there is a strong desire within the party to “deal with one of the most critical issues facing couples”. Privately, Labour figures are keen to place a focus on assisting first-time buyers in the party’s election manifesto.

Strategists believe the party will “reap the dividend” of having secured the environment portfolio, which oversees the €3.8bn social housing budget, until 2020. Finance Minister Michael Noonan reiterated that he has no powers to force banks to reduce their variable rates. But he urged customers to switch providers and shop around, which he says will put pressure on financial institutions charging higher rates. The issue of mortgages dominated both the Labour and Fine Gael party meetings this week. Mr Noonan has been urged by his own colleagues to force councils to buy distressed properties at 20pc below market price.

The local authorities could then rent these properties back to the occupant, so they remain in their homes. About 35,000 distressed mortgages have not been paid for more than two years.